Contents

INTRODUCTION

If the future of modern brand-building lies in creating meaningful and memorable experiences then there is no more fiercer, or important battleground than the retail sector.

With the breakneck pace of Amazon’s innovations forcing competitors to scramble to keep up, the pace of change in the market is intense. Wall Street firm Needham predicts Amazon will have a 50% share of all ecommerce sales in the US by 2021.

Amazon is changing the retail landscape as we know it

As if that was not enough pressure, Amazon is now launching its own physical retail stores and overnight it acquired a large physical store footprint through the acquisition of Whole Foods.

The continued rise of Amazon, reflects a new era of extreme-convenience where brands increasingly shape their offering to fit in with consumers' busy, multiplatform lives. At the other end of the scale retailers are focusing on transforming themselves into destinations in their own right to help stem the trend of customer spend diverting from "owning stuff" into leisure activities and experiences.

Retailers operating in the UK are having to contend with Brexit-related uncertainty and spiralling inflation, which means more creativity is needed than ever to win a customer’s share of wallet.

As new shopping behaviours emerge amid this fiercely competitive environment this report is designed to unpack key trends and their effect on brands today and tomorrow, and reveal what they must do to avoid disappearing into irrelevance.

Beyond omnichannel

The meteoric rise of Amazon and ecommerce as a whole was responsible for creating an obsession with omnichannel retailing. The unforeseen consequence was a disconnect between internal teams within retailers as they focused on their individual fiefdoms, whether that be in-store, ecommerce or any other number of "channels".

However, a sea change is occurring in how businesses approach omnichannel, despite the landscape becoming ever more complex as new channels such as voice add to the bewildering array already in existence.

Argos claims it was the first UK retailer to pass £1bn of annual sales through mobile

"There is no such thing as a typical customer journey any more," says Jill Ross, managing director at Accenture’s retail consulting practice. She believes the only true channel in the future of retail is the consumer, rather than the old platform distinctions between shopping in-store or online.

"I don’t very often hear customers talking about ‘channels’ or ‘journeys’ or even ‘experiences’, customers just tell us they want to go shopping," says Argos digital director Mark Steel. "Our challenge is to build connected experiences, irrespective of the device, so that customers can enjoy a great shopping experience whenever, wherever and however they choose."

He continues: "It’s important to ensure the organisation is aligned around ‘end to end’ customer experiences, rather than thinking about store versus online." However, despite this platform neutral approach he warns against overlooking the opportunity different devices or channels can offer.

Argos claims it was the first UK retailer to pass £1bn of annual sales through mobile, and Steel says this was a result of focusing on creating a "great shopping experience" on smartphones.

Argos concentrated on the ‘end to end’ customer experience

From platform to purpose

Karen McCormick, chief investment officer at venture capital firm Beringea, believes the attempt to avoid the pitfall of focusing too much on individual channels can be "nebulous and difficult so we try to bury our heads in the sand to avoid it". Retailers can rise to the challenge by developing a sense of purpose that runs through all activities.

"Our brand promise is grounded in inspiring our customer to lead a more interesting life," says Mary Beech, executive vice president and chief marketing officer at luxury design house Kate Spade. "Our goal is to continually be telling our story across a variety of platforms, ensuring we create thoughtful, unique programming and engaging with our customer whenever and wherever she wants."

Kate Spade most recently put this into action with an augmented reality campaign to publicise the launch of its Paris store. The experience included "Joy Walks" that used AR to allow people to see real world Parisian locations with a Kate Spade twist, including unexpected moments such as pink flamingos frolicking in the Seine and a New York City yellow cab bustling down a street.

Kate Spade's new campaign uses Augmented Reality to publicise the launch of its Paris store.

Dom Robertson, managing director at shopper marketing agency RPM, says that while having a purpose is important it does "not need to be saving the world". It should instead focus on the brand’s product and services and their benefits.

This sense of purpose provides consumers a reason to shop with a retailer at a time when Amazon is dominating the price proposition and brands and marketplaces selling direct to consumer are disintermediating the traditional retailer. Robertson believes the "path to purchase is incredibly challenging at the moment" but it comes down to a "human truth" of understanding the consumer and what the right message is at the right time.

Advancing technology means it is now easier to attribute the role of each moving part in pushing the customer towards a sale. For instance, McCormick is an advocate of the rise of "pay per visit" advertising being pioneered by Blis Media, which can track when someone has visited a store after viewing an online ad.

"The consumer journey from online to offline is going to continue to marry up and that is not just in advertising that is in all the ways that brands and retailers deal with their consumers," says McCormick.

The experience gap

The evolution of retail has created a chasm between the online and offline experience. Shopping in-store and online with the same retailer can feel a totally different brand experience. The transactional nature of online has created a consumer expectation of ultra-convenience, which is often not reflected when the consumer visits a store. Meanwhile, shopping online can feel an impersonal experience devoid of brand equity.

"Ecommerce in the last twenty years has been all about the endless aisle where you can order anything you want and it is fantastic and convenient but it is incredibly transactional," says Adam Levene, founder of Hero. "Retailers spend millions of pounds building these brands where they want to emotionally connect with their shopper but at the same time they use very transactional shop windows online."

Hero’s technology seeks to add an ecommerce layer to the physical retail space by allowing sales assistants to message and hold video calls with online customers when not serving customers in-store.

Research by Hero has found 67% of ecommerce brands that have received funding of over $6m have opened a physical store within the last 36 months as they recognise the importance of having a physical presence. Their belief in the power of the retail store appears well founded. Accenture’s research found 60% of Generation Z, who by their very definition are digital natives, prefer to purchase in-store.

Hero’s technology seeks to add an ecommerce layer to the physical retail space

However, there is much work to be done on making the store of the future fit for purpose. The IBM 2017 Customer Experience Survey found the sophistication of the digitally integrated in-store experience is rated adequate or worse for the vast majority (91 percent) of brands.

"Everyone has been talking about the death of the physical store but I don’t think there is anything less true than that. I think it has to be the case the retail store is shifting and it is going to be experience and technology-led," says Levene.

Nathan Watts, creative director at retail and brand consultancy Fitch, says retailers are starting to "gamify" their stores by "blurring the lines between retail and experience to make that a more fun experience".

"Shopping malls over the years have started adding many more leisure and entertainment elements to their experiences and reducing the number of standard stores, and increasing the number of flagship stores," says Watts.

83% of respondents think stores are important as they allow people to see, touch and feel a product

Nike Town and Topshop’s flagship shop on London's Oxford Street are held up by Watts as an example of what a great store can look like.

"The big shift we are seeing is the role of flagship stores," says Robertson. "People still want to touch and feel, and meet humans. The retail store will change for sure but the need and want for human interaction is still really apparent."

The sensory desire to touch and feel is borne out by Mindshare’s Future of Retail research, which found 83% of respondents think stores are important as they allow people to see, touch and feel a product.

The concept of maintaining the "human touch" runs deep among today’s retail marketing experts. Fitch is a believer in the "smaller human rituals" that delight customers and make them feel like honoured guests.

Watts believes the UK needs to refocus on these rituals and take a leaf out of the book of cultures such as Japan or India, where there is a "100% expectation you will treat me well".

This refocus is needed because some are prone to forgetting the retail basics and expect retail technology will fill the gaps, according to Watts.

Rather than detracting from a personal in-store experience, technology can add to it if handled correctly.

Technology and data offers the possibility of extending "clientelling", the practice of sales assistants establishing long-tem relationships with key customers, beyond just the luxury sector.

"What if you could know everybody?" asks Matthew Drinkwater, head of the Fashion Innovation Agency at London College of Fashion. "What if every consumer that went into your store received that level of service? In a way it is weird because it is just returning retail to what it used to be – going to your local store and them knowing who you are."

Drinkwater says the best implementations of in-store tech should "hide and disappear" and avoid adding another layer to the consumer experience.

This is exactly what Amazon is attempting to do with its Amazon Go checkout-free store concept, which uses sensors to record the items customers pick up and then charges them to their Amazon Prime account.

"By and large, technology by its nature tends to intervene in what is a retail experience," says R/GA technical director Kaustav Bhattacharya. "Where technology is really assistive is when it blends into the background and becomes a passive and non-invasive experience."

Connected Commerce

Boundaries within retail marketing are blurring all the time to create a multi-layered shopping ecosystem.

One area this is most evident is the increasing amalgamation of retail and social. Accenture’s research discovered Generation Z are most likely to use social media to begin their research prior to making a purchase.

Social media is allowing some retailers to punch above their weight and disrupt the dominant players in the market by innovating in the area of discovery

The social media sites have been quick to recognise this and are now introducing "shoppable" functionality to their websites.

"Instagram has become a new leader," says Beech. "With shoppable posts, consumers can instantly purchase something they see their favourite influencer wearing on the social platform."

Social media is allowing some retailers to punch above their weight and disrupt the dominant players in the market by innovating in the area of discovery.

"The companies making the most of this opportunity are not the big, established players, but start-ups and disruptors," says Facebook director of commerce Martin Harbech. "On Facebook and Instagram we have seen the same thing happen in pretty much all areas of retail. In each area, disruptors have realised that on mobile they don’t have to wait for purchase intent, they can create this themselves."

Retailers are even going as far as creating their own social media networks. Ian Charles, chief executive of online gardening retailer Primrose, says his company’s Gardens.Primrose social network has been set up as a means to allow users to "share their garden" with other enthusiasts.

The site is currently in beta but the idea is users will eventually be able to buy product from within the platform.

"We are trying to disintermediate the publishing houses by having our own content," says Charles.

Bhattacharya believes two key areas for the future of retail evolution are augmented reality and voice.

Apple’s ARKit, Google’s ARCore and Microsoft’s HoloLens are all helping bring down the barriers of entry to AR and accelerate its adoption.

Numerous powerful use cases of the technology are already on show such as Charlotte Tilbury allowing customers to virtually "try-on" numerous make-up looks through an AR-powered digital mirror.

"Augmented reality is going to be massive," says Bhattacharya. "We’ve now reached an inflection point where the AR technology has truly put the tool in the hands of the creatives and technologists who can rapidly and easily envision and create real life working production ready experiences."

When it comes to voice, Amazon is once again blazing a trail with Echo and Alexa. While currently limited to Q&A-style functionality, which is hit and miss at the best of the times, the future possibilities of voice are tantalising.

"In the near future it will move to a true dialogue," says Bhattacharya.

Amazon director of international ad sales Dan Wright told delegates at Dmexco that voice technology "will open up a green field for innovation and creativity".

The technology is destined to revolutionise search marketing. Joint Microsoft and iProspect research forecasts half of all search queries by 2020 will be carried out through voice.

While innovations including voice and chatbots are exciting prospects for retailers in themselves, it is artificial intelligence that is stitching them all together.

The final piece of the tech puzzle for retailers in the near future is virtual reality.

McCormick predicts the prospect of shopping in a virtual environment is not far off. The technology is already being used on a business-to-business basis to help retailers with their visual merchandising. The natural next step is to extend it to allow the consumer to shop.

"I think we will have the technology to start making ‘v-commerce’ commercial within 12 months," says McCormick.

Watts predicts: "VR will perhaps dominate more in engaging an enhanced online experience from the home, whereas AR may have more of a role in-store."

As is always the case, how these technologies are most effectively implemented must come back to the needs of the customer.

"There are lots of hot topics across retail right now – AI, voice, bots, VR, to name a few," says Steel. "Rather than thinking about the technology involved, I think it’s important to put customers first, and think about how the technology can help to create a fantastic shopping experience."

Conclusion

Retail is evolving faster than ever and customer expectations are off-the scale, but fortunately for retailers technology is at hand to ease the transition.

"Time is more and more limited, and the noise in the marketplace is enormous," concludes Beech. "Standing out with authenticity is imperative, as is being where she [the customer] is already spending time – and being there in a unique way. We always think about the ideal method – digital or otherwise – to immerse our customers in the world of Kate Spade."

Maintaining a strong purpose and keeping a laser-like focus on remaining relevant and serving customer needs is imperative for a retailer to flourish.

New technology can and should play an assistive role in this process and either disappear into the background or delight the consumer. Meanwhile, brick-and-mortar stores still clearly have a key role to play despite previous predictions of their downfall because in an increasingly digital world customers are still yearning for the human touch.

Retail faces its fair share of challenges but for those with the right approach the future should hold tremendous excitement for them and, more importantly, their customers.

***

Five trends in retail marketing

1. Product personalisation

Personalisation of products is about to hit an unprecedented scale due to robotics and 3D printing. Drinkwater believes technology advances will allow the instant production of consumer products to order.

A glimpse of this future can be seen in Adidas’ partnership with Silicon Valley start-up Carbon, which has technology that allows the creation of the midsole of a shoe that is the perfect fit for a customer’s foot through an additive manufacturing process called "digital light synthesis". The initial roll out will involve the production of 5,000 pairs of the Futurecraft 4D shoes this autumn/winter, while 100,000 pairs could be made in 2018.

FUTURECRAFT 4D: CREATE – adidas

Meanwhile, subscription services like Birchbox and Stich Fix have recognised this personalisation trend and are using customer data to tailor each item in a customer’s delivery. Some 76% of Generation Z are interested in such subscription services, according to Accenture.

2. Turbo-charged discovery

Shopping used to require a great deal of effort from the consumer to find the perfect product. However, now all the heavy-lifting can be done by retailers. Harbech says: "This is ultimately about the shift from ‘people finding products’ to ‘products finding people’ – which is what consumers want."

Advances in machine learning are allowing retailers to sift out the noise and create a complex picture of the customer through big data.

"There are online retailers that are specifically targeting and sometimes almost exclusively selling through Facebook," says Bhattacharya.

"On Facebook and Instagram we have seen start-ups and disruptors make the most of the opportunity to create purchase intent, rather than wait for it," adds Harbech. "Start-ups in the mattress industry like Simba, Eve and Casper have completely disrupted this model by creating desirable products, and then ensuring those products find the right people through social feeds."

3. Extreme convenience

King of convenience Amazon has driven this trend and it is influencing every single touchpoint. Customer expectations have been raised sky high by online retail and this is now filtering through to all aspects of retail.

Amazon is now bringing convenience to the physical environment with its checkout-free store format Amazon Go. Start-ups are also tapping into this trend. US-based Happy Returns, for example, partners with ecommerce brands to allow shoppers to return items bought online at bricks-and-mortar locations.

As ever, Amazon’s rivals are fighting hard to keep up with its innovation. Sainsbury’s is piloting its own version of a checkout free shopping experience. The technology is not quite as sophisticated as Amazon’s sensor-based technology, but instead lets shoppers scan and pay for items through an app on their smartphone in order to avoid queuing for a checkout.

Will checkouts soon be a thing of the past? Sainsbury’s is piloting a checkout-free shopping experience

4. Retail theatre

At the other end of the scale from convenience is the idea of creating retail theatre. Retailers are seeking to provide a reason to visit a shop at a time when customers’ attention is being diverted to leisure experiences.

"It would be churlish to ignore the experience side," says Robertson. "The experience economy is rising massively, people are looking for music, gigs, festivals and bars."

The recent troubles of Toys R Us in North America have highlighted the importance of making the store a fun place to visit.

"Toys R Us stores are not places where you would queue outside to go in and play like Hamleys or Lego stores," say Jon Copestake, chief retail and consumer goods analyst at the Economist Intelligence Unit. "If they were to change every store into a funfair, and completely revamp their brand then there may be a renaissance. Sometimes things stop being relevant and I think Toys R Us is verging on the irrelevant."

LEGO House Grand Opening Ceremony

5. Conversational commerce

The advent of social media has already created an environment where consumers are used to having a conversation with brands, but this is about to hit a whole new level.

Machine learning and artificial intelligence have also paved the way for innovations including chatbots and voice technology.

Voice will soon allow a true dialogue, and could even understand intonation, which will add an extra layer of context to search marketing as brands are able to gather much more data on the intent of a search request.

Chatbots are becoming ever more complex and mainstream. Some 27% of people have already used a chatbot, while six in ten 25-34-year-olds prefer to chat to brands via text, online chat or messenger app, according to research from Mindshare.

Facebook reveals there are 100,000 active bots on the Messenger platform, and nearly 20m businesses exchange messages with people every month.

From retailer to content brand - How Very redefined retail marketing

Very.co.uk is an online department store selling fashion, homeware and tech from over 1300 brands, with an array of payment options. Established in 2009, Very aimed to become a go-to retailer for women aged 25-45.

Challenges

As a retail newcomer, with no bricks and mortar presence, Very’s brand visibility depended entirely on marketing communications.

Since the launch of the brand the media landscape has been transformed. By 2015 the audience was consuming eight hours of media a day across five devices and multiple channels. In response, multiple teams were producing comms across a vast array of touchpoints.

Very needed an approach which would unify its communications, and take awareness to the next level. It became clear that Very needed to think less like a retailer and more like a content provider.

Execution

Looking at the plethora of touchpoints and platforms available, Very needed a compass to navigate. Very’s brand agenda was defined as: "Helping our audience ‘get more out of every day’, giving her effortless access to a world of possibilities." This would act as the guide for all content.

Looking through the customer’s eyes, it became clear that to earn her attention, everything Very put out into the world needed to be of value. Whether it was entertaining, useful or both, the audience needed to gain something from it. And, of course, Very had to get the credit so every piece of content had to be branded.

Inspired by the broadcasters – BBC 2, Channel 4, ITV – who combine branding and content, Very developed the pink cube, a flexible branded asset that represents the brand agenda. A delivery box you could literally "get more out of". The pink cube unifies comms across touchpoints.

To ensure Very was telling its story consistently, it was also necessary to define the brand’s body language: casting, styling, product selection, tone of voice. This approach allows Very to flex the level of branding in a way that's appropriate for the channel it is in.

Media shifted to an "always on" approach, ensuring that Very would reach the customer when she was most receptive. Kenyatte Nelson, the group marketing director of Very's owner Shop Direct, observes: "Being ‘always on’ means we can consistently reach our customer at the right time, in the right way. Combine that with inspiring and increasingly personalised content, and we have a huge chance to win in those moments of truth."

An example of the new approach is Very’s new idents for ITV’s This Morning. Running from 27 October, each ident is a little life hack that helps the viewer get more out of their day. Very does sell the products that enable these life hacks, but the focus is on the value to the audience, rather than being an overt sales pitch.

Results

The fragmented, multi-channel landscape requires a compass and a new kind of joined up creativity. By thinking like a content provider, within 18 months spontaneous awareness of Very almost doubled. Very is now a go-to retailer for 1 in 3 of its target audience, compared to 1 in 10 before the new approach. Very turned over £1bn in sales in its 7th year.

Shop Direct group marketing director Kenyatte Nelson and St Luke's chief executive Neil Henderson spoke together at IPA Eff Week, on marketing’s role in "Turning a legacy business into a world class digital retailer"

The marketer view

Q: As you open your new Oxford outlet what role do bricks and mortar stores have in your brand strategy?

A: Our stores are still the heart of our business, they’re the place where our customers can pick up and touch our products and try them on to make sure they get the best fit.

Q: Does social media demand more of an element of theatre in the in-store experience?

A: Sometimes as marketers we are guilty of thinking that it does, but ultimately customers are looking for things that make their shopping experiences either better or easier. We have hosted a lot of events at our flagship store at 311 Oxford Street over the last year; we had a talk from Victoria Pendleton, music events in partnership with NTS Radio, art related events in partnership with Tate Modern and even yoga mornings on our rooftop. The thing that works best is giving customers something that they want or something that they can’t get anywhere else.

Q: How do you balance the brand experience in store and online?

A: Our product is central to our brand – as a company we exist to make clothing that makes our customers' lives better, that’s why we talk about LifeWear. We see our website as a digital flagship, it’s where you can see our full product range, read the full information about it and read reviews from other customers. However, our stores are where you can pick product up and touch it and this is sometimes essential to purchasing clothing. We like to think that our ecommerce site and stores exist side by side as we know that the customer journey is rarely linear these days so we need to make it as easy as possible for our customers to shop our product. That’s why we offer next day delivery click and collect or why we work with shopping delivery service Drop It, to make the experience as smooth and easy as possible for customers.

Q: How do you see the experience in-store evolving?

A: Over the last few years we have seen (and even tried) lots of trends in the retail environment. The only ones that will last will be the ones that make customers’ experience better or easier, the gimmicks will come and go quickly.

Q: How do you bring excitement to the in-store experience?

A: We’re really big on hosting events in stores, things that bring a smile to our customers’ faces. We're going to have a Lego event in our flagship store to celebrate our Lego kids’ range and the new Ninjago film giving kids (and parents) a welcome break from shopping on Oxford Street. In the past, we have hosted product launch parties, yoga mornings, running clubs, mindfulness workshops and even a tennis event for kids with Kei Nishikori. Our LifeWear ethos is all about creating clothing that makes people’s lives better, whether that’s keeping them warmer or more comfortable. We follow the same guidelines for our in store experience, we want to make our customers' lives better.

Q: What role does working with other designers and brands, such as your recent JW Anderson, bring to the shopping experience?

A: Designer collaborations are a great way to add news and excitement to our seasons, it enables us to work with some of the best talent in the industry to reimagine our products with touches of their aesthetic. It’s a really great way of generating excitement about the brand for existing and new customers.